VIDEO: Our Road Map for a Busy Data Week

In today’s Daily Rundown video, Chris Versace shares the portfolio's roadmap for the coming week. 

He discusses why between this week’s economic data, earnings reports, and investor conference presentations we, and the market, will be focused on S&P 500 EPS expectations for H2 2024. 

Transcript

CHRIS VERSACE: Hey, everyone. Chris Versace here, Monday, June 3-- start of a fresh month and the last one of the current quarter. So with that, let's take a quick snapshot of where the market is quarter-to-date two months in to the second quarter of 2024. Well, the S&P 500 is up just 0.4%. NASDAQ up 2.2%. The Dow and the Russell are down more than 2.5%.

And as we look at that, the market narrative continues to really weigh in on AI. No surprise there when we look at the quarter-to-date returns from a number of the usual suspects in that arena for the market portfolio. That of course, means NVIDIA, Qualcomm, and the like.

So as we get ready for this last month, what's the current market narrative? Well, it continues to dance between the strength of the economy, EPS generation, and Fed rate cut timing. And the market mood, it really depends on the indicator you want to look at.

Euphoria, according to the Citibank Panic Euphoria model. But when we look at the fear and greed index, it's flashing neutral. And it's that neutral that really has caught my eye because I think what the market is looking for is a sense of direction.

And I say this because we take a look at where the S&P 500 is trading. Yes, it's up 0.4% quarter-to-date. But when we look at it relative to 2024 earnings expectations, it closed Friday around 21.6 times. That's kind of still bumping up against the highs that we saw in 2022 and 2023.

So it says to me that the market is trying to determine, are we likely to get more earnings growth in the second half of the year in order to propel the market higher? Now, remember, that's the market. When it comes to the portfolio, we, of course, are leaning into companies that are poised to generate their earnings even faster than the market.

So what does the market expect? Or what's expected of the market, I should say, is, in the second half of 2024, consensus earnings for the S&P 500 are expected to be up about 11% Now, that's a big, big set of growth factors behind the first half of the year to the second half of the year. And remember, the vast majority of earnings tends to happen in the back half of the year, so this is going to be an important time for the market.

What does it mean? Well, this week, we have a lot of economic data, but we also have the start of the June investor conference wave. So when we parse everything that we're going to be hearing this week, folks are going to want to be assessing, hmm, has much changed in the last four to six weeks from when these companies that are presenting at these conferences last gave their outlook for the current quarter and/or 2024?

You know, are things stacking up the way people think? Are they better than expected? Are there issues bubbling up that we should be worried about, whether it's on demand, inflation, supply chain, or some other factors out there?

So I do think this week is going to be a very important one, again, because of what we'll learn from companies about the current quarter and potentially the back half of the year. But we also have a sea of economic data coming at us. And again, the market is trying to determine, well, what's the real rate of growth for the economy in the current quarter?

Well, the first quarter, we saw GDP was revised down from 1.6% to 1.3%. But the majority of economic models that talk about the current quarters show varying degrees of growth. Some picking up; some around the same for the first quarter.

Now, the one that most people tend to look at is the Atlanta Fed GDPNow model. That got downgraded last week to plus 2.7% for the current quarter. Previously, it had been hovering around 3.5%.

Here's the deal, 2.7%, still growth above trend if that is indeed the right figure for the current quarter. And that brings us to this week's data. Because the Atlanta Fed model is only based on what we've seen thus far for the month of April. And we know there are three months in a quarter.

So now we are going to start getting data for the month of May, which means we are going to see revisions to these rolling GDP forecast models, including the one by the Atlanta Fed, over the next several days as this initial wave of May data is published. And boy, as you know, the start of the month is a big one when it comes to data.

So what do we have on tap this week? Well, we've got the May PMI reports, final ones for both manufacturing and services. We'll get those from ISM, as well as S&P Global. Now, you know what we look for in these things.

What is the tone of the respective sectors? What does new order growth tell us? What are we seeing from input/output cost pricing for both the manufacturing and service sides? And finally, employment.

So all of these are going to help tell us several things that we want to know about the economy. Again, really, what's the vector? What's the velocity? And what are we seeing about inflation?

We've seen that the inflation comments in the PMI reports have had a very good linkage to the following CPI reports, so we're going to watch them very closely. In particular, when we look in what's expected for ISM, the prices paid components for the month of May are expected to tick higher compared to April.

If we do get that, that's going to tell us that inflation remains at a minimum persistent. And I think we'll probably see that translate into some renewed push back on rate cuts being pulled forward. As you know, we continue to think we'll get one rate cut very much towards the end of the year. So that's the May PMI reports.

We're also going to get some really good snapshots on job creation. We'll get that in two forms. One with the Atlanta-- sorry, with the ADP. Yes, ADP. A lot of acronyms, a lot of names, but this is what the ADP employment change report, as well as, of course, the monthly employment report for May.

Inside both, how many jobs are being created? Is it slowing, accelerating? And what do both say about wage pressures? Another benchmark that we'll be watching as it relates to inflation.

Now, we do also have the April construction report coming. And that's going to be the latest catalyst for a couple of our different names in the portfolio, most notably United Reynolds Vulcan Materials and indirectly, of course, waste management. You can't do construction without waste. And this, of course, will be watching for wastes, non-residential business.

But we also have some other things that are going on this week. We do have some companies reporting. From the portfolio perspective, we don't have any. But we do have another wave of retail earnings. And we're going to be hearing from Bath & Body works, PVH, Five Below, Lululemon, Victoria's Secret, Big Lots.

It'll give us another perspective on the consumer, which, so far, seems to be that they are selective. Increasingly lower income Americans are trading down. Again, that's why we're doing some incremental homework on TreeHouse Foods in the bullpen. And once we've kind of fine tuned potential entry points, we'll be sharing those thoughts with you.

We also have some other areas reporting this week, for example, CrowdStrike on cybersecurity. But we also have HP and Sienna. That's going to be about cloud, digital infrastructure, and, no doubt, AI.

So it's going to be a very busy week toward the end of it, I think we'll have a much better sense of the economy. We'll have a better sense of what earnings prospects could be. Remember, the market is going to want to get some confidence between the economic data and the wave of conferences that we have coming at us.

Is 11% EPS growth in the second half of the year likely? Or are we seeing signs that it could be even stronger than that? And if we see that, then I think that's going to give the market some legs.

But we will continue to refine our shopping list. We will continue to be prudent, given the level of cash that we have. We'll be looking for opportunities, both existing positions, because we do have a few there that we want to continue to pick up, perhaps a little more lab core, perhaps a little more waste management. But we'll also be kicking over one to other new names potentially for the bullpen.

I have some ideas. In fact, a hat tip to one person over in the forum who kind of pointed out how much one company has pulled back over the last few weeks. So what I would say is, that is our video for today, but it's going to be a busy week.

Please be sure to check your alerts. Check your emails. We want to make sure you are right there with us with our latest thoughts and any moves we make with the portfolio. Thanks for watching.